Capital-labor substitution and competitive nonlinear endogenous business cycles
AbstractWe develop in this paper simple geometrical methods to study local indeterminacy, bifurcations and stochastic (sunspot) equilibria near a steady state, in nonlinear two dimensional economic models. We present stochastic sunspot equilibria, which allows a constructive description of local bifurcations. The latter analysis is relevant when some eigenvalues of the linearized dynamics, near the steady state, have a modulus close to one (“unit root(s)”), as taking into account small nonlinearities generates linear local approximation. These methods are applied to a simple aggregative model (Woodford (JET, 1986)), to study in particular the influence of capital-labor substitution and of the aggregate labor supply wage elasticiy, on the occurrence of competitive endogenous deterministic or stochastic fluctuations.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997087.
Date of creation: 01 Nov 1997
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Endogenous business cycles; sunspots; indeterminacy of equilibrium; nonlinear dynamics; bifurcations; unit roots;
Other versions of this item:
- Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, vol. 80(1), pages 14-59, May.
- Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Working Papers 97-28, Centre de Recherche en Economie et Statistique.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
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